Unit 1 Section 3 Finance

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1. List 7 sources of finance?
1. Mortgage 2. Loans from family and friends 3. Bank loan 4. Owners funds 5. Overdrafts 6. Trade credit 7. Government grants
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2. What are the advantages of using a loan instead of an overdraft?
•You can pay it off over a longer period of time (3-5 years), whereas an overdraft is a short term loan and needs to be paid off quickly •An overdraft limit usually £1000. If you need more you will need a loan (YOU HAVE TO PAY INTEREST ON BOTH)
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3. What are the features of a mortgage?
Mortgages are loans from banks and building societies that are used to buy land and buildings. They are long term loans. Usually 25 years. They have a low interest rate.
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4. What are the features of a bank loan?
You pay the money back over a period of time. It is a medium term loan where you usually pay the money back over a period of 3-5 years. The bank provide bank loans. You have to pay interest.
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5. What is meant by owner's funds?
Owners funds is the name given to money put into the business by its owners.
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6. What is meant by an overdraft?
Banks may agree to a person or business taking money from their account which they do not have. This is called an overdraft facility. They pay interest on the money they take and they must pay it back over a short period.
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7. What is meant by trade credit?
This is where a business can buy stock from another business and only pay for that stock once they have received payment for it.
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8. What is a government grant?
The government sometimes gives businesses money to start a business if it is going to give jobs to a certain area.
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9. What is an advantage and disadvantage of mortgage?
Advantage- low interest rate. Can pay it back over 25-30 years Disadvantage- Can only be used for property.
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10. What is an advantage and disadvantage of loans from family and friends?
Advantage- Interest free Disadvantage-May not be able to lend enough money or may need to have it returned suddenly.
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11. What is an advantage and advantage of a bank loan?
Advantage- Lower interest rate than an overdraft and the bank will let you pay it back over a number of years. Disadvantage- The bank may tell a new firm that they are not allowed a loan.
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12. What is an advantage and disadvantage of owners funds?
Advantage- You wouldn't have to pay any interest on it. Disadvantage- The owner might not have enough funds.
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13. What is an advantage and disadvantage of trade credit?
Advantage- You don't pay for stock until you've been paid by your customer Disadvantage- Not all items can be bought using trade credit.
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14. What is an advantage and disadvantage of government grants?
Advantage- You don't have to pay interest on the grants Disadvantage- You may not get all the money needed. You may not be eligible for a grant.
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15. List four places where a new entrepreneur can get advice
1. Banks 2. Accountants and solicitors 3. Princes trust 4. Chambers of commerce
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16. How can a bank provide help to an entrepreneur?
•Give them a bank account •Give them a loan •Give them an overdraft facility •Give them advice
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17. How can a solicitor or accountant provide help to an entrepreneur?
•A solicitor gives legal advice. •An accountant can give advice on the accounts for the business.
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18. How can the Prince's trust help a young entrepreneur?
This is a charitable organisation which helps 18-30 year old unemployed people set up their own business. They provide advice, grants and low interest rate loans.
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19. How can the chambers of commerce help an entrepreneur?
Chambers of commerce are local organisations made up of local businesses of all sizes. They can provide advice and help.
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20. What is cash flow?
Cash flow is the movement of money into or out of a business. Money in could be sales from customers. Money out could be dividends to shareholders, utility bills, stock wages.
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21. What is a cash flow forecast?
A cashflow forecast predicts the income and expenditure each month. IT IS NOTHING TO DO WITH PROFIT. It helps a business predict whether they have enough money available to pay their bills each month. The cashflow forecast will predict if a business
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22. Why does a business need to create a cashflow forecast?
It predicts the money coming into and out of the business each month and helps to predict if the business has enough cash available to cover it’s expenses.
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23. List four solutions to cashflow problems?
•Spread out payments by using a loan •Try and increase sales during quiet months by using promotions •If your products are seasonal such as a garden centre sell something else at quiet times eg Christmas trees •Try and make sure your customer pays
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24. A forecast is an attempt to _____ what could happen in the future?
Predict
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25. Can a cashflow forecast always predict the future accurately?
No, it's just a prediction. Sometimes things cost more sometimes less.
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26. If a cashflow forecast can’t accurately predict money in and money out of the business, why create one?
Creating a cashflow forecast could help you plan for months when you believe you may not have enough cash available for expenses. This planning will mean that you’re less likely to have negative cash flow.
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Card 2

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2. What are the advantages of using a loan instead of an overdraft?

Back

•You can pay it off over a longer period of time (3-5 years), whereas an overdraft is a short term loan and needs to be paid off quickly •An overdraft limit usually £1000. If you need more you will need a loan (YOU HAVE TO PAY INTEREST ON BOTH)

Card 3

Front

3. What are the features of a mortgage?

Back

Preview of the front of card 3

Card 4

Front

4. What are the features of a bank loan?

Back

Preview of the front of card 4

Card 5

Front

5. What is meant by owner's funds?

Back

Preview of the front of card 5
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